THE PRACTICAL EFFECT OF THE IRAQI OIL-FOR-FOOD PROGRAM

THE PRACTICAL EFFECT OF THE
IRAQI OIL-FOR-FOOD PROGRAM

By Douglas Scott

Note: This paper originally appeared in Disarmament Diplomacy (issue No. 25, April 1998). The version that follows has been edited but not updated. Disarmament Diplomacy is a periodical published monthly in the UK by the Acronym Institute.

Despite the fact that it has been operating for many months, there has been very little talk about what the Iraqi oil-for-food program actually means in practical terms. Beyond quoting the bald figures representing the value of oil that can be sold, 2 billion dollars — now increased to 5.256 billion dollars, media reports have offered little else. As a result there are many unanswered questions.

· What do these figures translate into?

· What volume of oil will Iraq be exporting for the 2 billion dollars and the 5.256 billion dollars?

· Are these volumes a significant percentage of the oil that Iraq exported prior to the sanctions, or are they just token amounts?

· How much food can Iraq buy for 2 billion dollars? And how much for 5.256 billion dollars?

· How do these amounts compare with the amount of food that Iraq imported before the sanctions?

Answers to these questions are presented in the Table accompanying this paper "Anticipated Results of the Oil-for-Food Programme".

None of these questions has been dealt with in the media. Nor is the information readily available from the UN. Bearing in mind the fact that the very reason the UN adopted the program was that there was a feeling among the general public that sanctions needed something in the way of humanitarian content, one might have thought that the UN would have been anxious to provide answers to questions such as these and to publish some information as to the meaning of the oil-for-food program in practical terms. Not only has there been no explanatory material published, the UN has been strangely reluctant to divulge information about the oil-for-food program.

Recent developments have made it even more important for the public to have some appreciation of whether the program is generous or only token. Iraq has begun a vigorous campaign to persuade the Security Council to lift the sanctions altogether. Among other arguments, Iraq is making much of the suffering of the Iraqi people (without mentioning the oil-for-food program). Its objective seems to be to divide the Council and isolate the US. As a start, Iraq is hoping to win the support of Russia, China and France.

Support for ending the sanctions is starting to develop in the non-governmental community, at least in the US. The Iraqi American Committee in Los Angeles has launched a “Free Iraq Campaign” in an effort to have Saddam Hussein indicted for war crimes and to get the sanctions lifted.[1] Other groups with objectives that include the lifting of sanctions have formed in New York (Iraq Sanctions Challenge) and Chicago (Voices in the Wilderness).[2]

Another development that is causing more attention to be given to sanctions is the fact that the US appears to be de-emphasizing the military option for dealing with Iraqi problems. It would appear that there are anxious debates taking place within the US Administration on this matter.[3] President Clinton recently remarked at a press conference, when speaking of the US military presence in the Gulf, “… at some point in the future, I would anticipate some reallocation of our [military] resources.”[4]

It would appear that the US is coming to the conclusion that its critics were correct when they said that the contemplated bombing operations would be useless towards achieving the objective of removing Iraqi obstructions to the inspections.[5] In addition, the US may be reassessing the question whether it would be justified under existing UN Security Council Resolutions to launch a military strike against Iraq.[6]

These developments indicate that there are two opposing forces coming to the fore in relation to the sanctions. There is a campaign to lift the sanctions altogether and at the same time, there is a toning down of the emphasis on military measures which may point to sanctions becoming more important. As sanctions come in for more attention in the coming weeks, it is essential that the public have a more accurate understanding of the strengths and weaknesses of the existing sanctions regime. Vital to this understanding is some reliable information on the practical effect of the oil-for-food program. It is this information that this paper seeks to provide.

The Current Program

The oil-for-food program consists of an arrangement whereby Iraq is allowed to sell a quantity of oil on condition that the proceeds are paid to the UN which will use them partly to pay for food and medicine for the benefit of the Iraqi people and partly for other purposes. In its current form, the program provides that 30% of the proceeds are used to pay compensation for the victims of Iraq’s invasion of Kuwait; about 5% for the inspection expenses of UNSCOM and for certain other UN expenses; and the balance, about 65%, to pay for food, medicine and other humanitarian commodities.

The history of the program goes back to a point shortly after the Gulf War. On 15 August 1991, the Security Council adopted Resolution 706 which provided for the sale of oil to the value of 1.6 billion dollars during the period of 180 days. The program was dependent on Iraqi cooperation, since Iraq would have to produce the oil and would have to be involved in the distribution of the food and medicine. Iraq refused to accept Resolution 706 and more than five years went by before Iraq finally decided to accept the UN's offer. In the meantime, the Security Council adopted a new resolution on oil-for-food in April 1995 (Resolution 986) which increased the limit from 1.6 billion to 2 billion dollars every 180 days. Iraq's preliminary acceptance of Resolution 986 took the form of a Memorandum of Understanding signed in May 1996[7]. The final acceptance of the administrative details came in November 1996[8]. The first proceeds of the sale of oil were deposited in the UN’s Iraq escrow account on 15 January 1997[9]. The first shipment of humanitarian commodities entered Iraq on 20 March 1997[10].

Resolution 986 was intended to provide an exception to the original sanctions resolution, which was adopted by the Security Council immediately after Iraq’s invasion of Kuwait (Resolution 661, 6 August 1990). Even before Iraq’s acceptance of the Resolution 986, it was permitted under the original sanctions resolution (661) to import food and medicine without restriction, but since it was prohibited from selling oil, it lacked the foreign exchange necessary to buy these items. Prior to the sanctions, Iraq depended on the sale of oil for 85% of its foreign exchange[11].

Under Resolution 986, Iraq is permitted to earn substantial quantities of foreign exchange but with the proviso that the UN collects all the proceeds. The UN deducts 35% for the purposes noted above and uses the balance to buy food and medicine. The decision as to what portion of the funds should be allocated to which particular category of food and medicine is made jointly by the UN and Iraq. The Resolution contemplates “arrangements or agreements” whereby the Secretary General and Iraq settle on a plan setting out the manner in which the funds are to be spent[12]; this plan later became known as the Distribution Plan.

Resolution 986 stipulated that the program would expire 180 days after its entry into effect unless renewed by further resolution of the Security Council. The program has been renewed twice: Resolution 1111 covering Phase II and Resolution 1143 covering Phase III. For each new phase, Iraq and the UN must agree on a fresh Distribution Plan, essentially a spending budget based on an estimate of the oil revenues for the particular phase[13]. Phase III of the program is now in effect and is due to expire on 3 June 1998[14].

The Revised Program

On 20 February 1998, the Security Council adopted Resolution 1153 which extended Resolution 986 for 180 days but altered the maximum value of Iraqi oil permitted to be sold during that period from 2 billion dollars to 5.256 billion dollars. Resolution 1153 provides that it is to enter into effect when a new Distribution Plan has been approved[15], which is expected to occur around the beginning of June so as to coincide with the expiry of Phase III. In the meantime, Phase III of the current program under Resolution 986 remains in effect.

Resolution 1153 recognized that additional information was needed as to the question whether Iraq had the physical capability to produce and export the quantity of oil authorized in the Resolution. The Secretary General was therefore requested to dispatch a team of experts to Iraq to survey the condition of its machinery and equipment for producing and transporting oil[16]. On 15 April 1998, the team’s report was submitted to the Security Council with a letter from the Secretary General[17]. The report concluded that Iraq’s machinery and equipment for producing and transporting oil was so dilapidated that it was in no position to export more oil than its current level of exports. The document goes on to advise that, with an expenditure of 300 million dollars for repairs and refurbishment, it might be possible for Iraq to export at a level sufficient to yield 4 billion dollars over a period of 180 days. This particular point is not stated explicitly in the Secretary General’s letter or in the accompanying executive summary of the team’s report, but the Secretary General seems to have adopted this conclusion in his recommendations to Council. Accordingly, his letter recommends that Council authorize the expenditure of 300 million dollars for repairs and improvement and that Council adopt the figure 4 billion dollars as the maximum “authorization” for Phase IV beginning June 1998. The 4-billion dollar authorization was to be an interim limit with the expectation that it would be increased in later phases, eventually reaching the limit of 5.25 billion as stipulated in Resolution 1153[18].

Is There Anything Left Of The Sanctions?

Three salient facts emerge from the figures appearing in the Table accompanying this paper:

· After Iraq’s infrastructure for producing and transporting oil has been rebuilt sufficiently to allow it to sell oil at the rate of 4 billion dollars per 180 days, it will be in a position to sell oil at a level close to the level in 1989; this was the last full year before the sanctions were imposed and it was a bumper year for Iraqi oil sales.[19]

· At the level of 4 billion dollars, the program will allow Iraq to import the same quantity of food annually as it imported before the sanctions.[20]

· When Iraq is eventually able to refurbish its oil industry sufficient to allow it export oil at the level authorized in Resolution 1153 (5.256 billion dollars), the value of food that will be available to Iraq will be in excess of its needs. As a result, there will be a substantial surplus available to be spent on capital items such as electric power generators and water supply systems. (The amount available for the capital expenditures will be about 2.1 billion dollars which is substantially more than the amount allocated for food for Phase IV[21].)

Obviously, the revised program, when it comes into full operation, will represent a significant dilution of the sanctions regime. Even with the program at the 4-billion-dollar level, the sanctions regime would appear to have significantly less potency than it had when it was first imposed in 1990. Some might argue that the Oil-for-Food Programme virtually emasculates the sanction regime's strongest element: the oil embargo. Indeed, some might question whether there will be any real potency whatever left in the sanctions regime. Conceivably, there may be some who will argue that the regime has been weakened to a point where it is no longer worth keeping afoot. There could be calls to abandon the whole sanctions regime purely on the basis that its remaining benefits do not measure up to the trouble involved in its administration.

Upon closer examination, however, it is apparent that the sanctions regime in its new format has retained much of its former potency. Evidence of its continuing strength is to be seen primarily in the fact that Iraq is currently demanding the permanent lifting of the sanctions. Iraq’s Deputy Prime Minister, Tariq Aziz, in a letter to the Security Council on 22 April 1998 demanded that the sanctions be lifted “immediately and without any new restrictions or conditions”.[22] On 25 April 1998, one of Iraq’s important journalists, Salah al-Mukhtar, in a front-page editorial, reported by Reuters, wrote “we are adamant on breaking the embargo this year if it is not lifted by the Security Council. America and others have to choose between lifting the embargo or storms that are impossible to control, like past events have proven, which will get rid of all the putrid symbols.”[23]

One of the reasons that Iraq finds the sanctions regime so objectionable, even in its diluted form, stems from the fact that, under the oil-for-food program, the UN controls the manner in which a large proportion of Iraq's national revenue is spent. Moreover, the UN insists on approving every contract for the purchase of the humanitarian commodities (in order to ensure that the proposed purchase cannot be used for military purposes). Iraq finds this extremely annoying and is making every effort to persuade the UN to relax this requirement. Iraq has insisted on having countless meetings to deal with its objections to the procedures used by the UN for approving purchase contracts. Iraq is obviously annoyed, frustrated and humiliated by the fact that the UN exercises so much control over its daily life.

It must be remembered too that Iraq is losing 35% of the proceeds of its oil sales — the portion siphoned off by the UN mostly to pay compensation to the victims of the evasion of Kuwait.

The conclusion is clear that the sanctions regime, even with the allowance under the oil-for-food program, is still a potent instrument.

The Nature of Iraqi Sanctions

The sanctions against Iraq possibly differ from other sanctions regimes in that the primary focus is upon blocking Iraqi exports and much less attention is given to blocking imports. The only direct measure to block imports consists of Security Council rulings that require member States to enact regulations to prevent their citizens from selling or supplying items to persons in Iraq or representing Iraq. But there are few border controls to prevent items from crossing into Iraq. Instead of measures operating directly on imports, the matter is dealt with indirectly — through blocking exports of oil which has the effect of decimating Iraq’s sources of foreign exchange. Without foreign exchange, a country is unable to pay for its imports. It then finds it impossible to obtain imports, unless it can find friends abroad who are willing to sell on credit or provide loans, both of which are prohibited under the Iraqi sanctions.

The arrangements for blocking oil exports are effective despite the fact that Iraq is able to earn relatively small amounts of foreign exchange by smuggling goods across its borders. Some of these smuggled exports consist of oil, but always in small quantities (except for shipments of diesel oil to Turkey — for which there are special reasons). Bulk shipments of crude petroleum, however, have been blocked altogether. The UN has found it relatively easy to accomplish this, partly by commissioning a naval blockade in the Gulf[24] which blocks shipments by tanker from Iraq’s ports on the Gulf, and partly by arranging with Turkey to close the pipelines between Iraq and the Mediterranean. Overall, the oil embargo has succeeded in reducing the amount of foreign exchange Iraq is able to earn to a mere trickle.

A New Breed of Sanctions

There can be no doubt that the oil embargo, prior to the oil-for-food programme, was the most important element of the sanctions regime. With the coming of oil-for-food, the oil embargo was given a different purpose. Instead of blocking exports, the purpose now is to channel them through the UN. This has produced a fundamental transformation in the sanctions regime. While the original regime had the effect of choking off Iraq's oil revenues, the new regime allows the oil to flow and permits the UN to control how the revenues are spent — which means that the UN is able to ensure that the greater proportion of the money is used for food and other humanitarian purposes.

This new breed of sanctions goes a long way towards minimizing the impact on the citizens of the target country, and instead it targets the political leadership. It does this by intruding upon the leaders' right to govern. In the case of Iraq, this intrusion is keenly felt and fiercely resented. To state the matter differently, under this new breed of sanctions, the UN exercises control over the greatest part of the country's export earnings with the result that it is able to channel the money in such a way as to nullify much of the adverse humanitarian impact of the sanctions while at the same time shifting the target of the sanctions to the country's political leadership.

[1] Iraqi American Committee, P.O. Box 41164, Los Angeles, CA 90041, U.S.A.
e-mail: marka@broadcom.com .

[2] “Americans, Flouting UN Embargo [sic] Organize Relief For Iraqis”, New York Times, 23 April 1998, p. A11.

[3] “No Time to Tone Down.” by Jim Hoagland, New York Times, 23 April 1998. “Pentagon Wants Troops Cut in Gulf,” Associated Press, 28 April 1998 quoted on the Internet at http://search.washingtonpost.com/wp-srv/WAPO/19980428.

[4] Press Conference, 30 April 1998, reported in Iraq News, 1 May 1998, a newsletter published by Laurie Mylroie: samll@erols.com.

[5] For a collection of these criticisms, see “Memorandum on the Question Whether Existing Security Council Resolutions are Sufficient to Authorize the US to take Military Action Against Iraq”, Appendix 7, by Douglas Scott; available on the Internet at www.hwcn.org/link/mkg/index2.html.

[6] On this point see “Memorandum on the Question Whether Existing Security Council Resolutions are Sufficient to Authorize the US to take Military Action Against Iraq”, by Douglas Scott; available on the Internet at www.hwcn.org/link/mkg/index2.html.

[7] S/1996/356.

[8] Disarmament Diplomacy, November 1996, Issue No. 10, p. 52.

[9] UN Publication: “Implementation of Security Council Resolution 986 — Chronology” www.un.org/Depts/oip/chron.htm.

[10] Idem

[11] Conversation with representative of Cambridge Energy Research Associates, Cambridge Massachusetts. Other estimates put this figure at 90% or 95%.

[12] Resolution 986, paras. 3 and 13.

[13] See for instance the Distribution Plan for Phase III: www.un.org/Depts/oip/dplan/dp-main.htm.

[14] Resolution 1143, para. 1.

[15] Resolution 1153, paras. 1 and 5.

[16] Resolution 1153, paras. 12 and 13.

[17] UN Doc. S/1998/330.

[18] UN Document S/1998/330, Annex, paras 27 and 28.

[19] See accompanying Table, boxes 6C and 8.

[20] id, boxes 3C and 7.

[21] This figure is derived from deducting the figure in box 3B in the accompanying Table from the figure in box 2B.

[22] “Iraqi Again Threatens To Halt Arm Inspections.”, New York Times, 24 April 1998, p. A3.

[23] Quoted in Iraq News a newsletter published Laurie Mylroie: samll@erols.com.

[24] Resolution 665, 27 August 1990.

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